What is RDSA.AS's Intrinsic value?

Royal Dutch Shell PLC (RDSA.AS) Intrinsic Value Analysis

Executive Summary

As of October 26, 2025, Royal Dutch Shell PLC's estimated intrinsic value ranges from $12.69 to $72.45 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $20.11 -14.2%
Dividend Discount Model (Stable) $12.69 -45.8%
Earnings Power Value $72.45 +209.2%

Is Royal Dutch Shell PLC (RDSA.AS) undervalued or overvalued?

With the current market price at $23.43, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Royal Dutch Shell PLC's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 2.3% 2.8%
Equity market risk premium 6.6% 7.6%
Adjusted beta 0.84 1.06
Cost of equity 7.9% 11.4%
Cost of debt 4.6% 5.1%
Tax rate 18.0% 25.2%
Debt/Equity ratio 0.58 0.58
After-tax WACC 6.4% 8.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $180,543 (FY12-2020) to $431,366 (FY12-2030)
  • Net profit margin expansion from -12% to 5%
  • Capital expenditures maintained at approximately 8% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $(61,900)M 41.5%
10-Year Growth $21 $216,869M 100.6%
5-Year EBITDA $(1,234) $29,641M 222.1%
10-Year EBITDA $6 $100,554M 101.4%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 112.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.6%
  • Long-term growth rate: 4.0%
  • Fair value: $-5.15 (-122.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.4% (Low) to 7.9% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $5 to $21
  • Selected fair value: $12.69 (-45.8% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $46,231M
Discount Rate (WACC) 8.6% - 6.4%
Enterprise Value $536,982M - $727,465M
Net Debt $57,318M
Equity Value $479,664M - $670,147M
Outstanding Shares 7,759M
Fair Value $62 - $86
Selected Fair Value $72.45

Key Financial Metrics

Metric Value
Market Capitalization $181831M
Enterprise Value $231027M
Trailing P/E 45.80
Forward P/E 41.79
Trailing EV/EBITDA 3.75
Current Dividend Yield 307.65%
Dividend Growth Rate (5Y) -6.41%
Debt-to-Equity Ratio 0.58

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 55% $6.03
Dividend Discount Model (Stable) 27% $1.90
Earnings Power Value 18% $7.25
Weighted Average 100% $27.60

Investment Conclusion

Based on our comprehensive valuation analysis, Royal Dutch Shell PLC's intrinsic value is $27.60, which is approximately 17.8% above the current market price of $23.43.

Key investment considerations:

  • Strong projected earnings growth (-12% to 5% margin)
  • Consistent cash flow generation

Given these factors, we believe Royal Dutch Shell PLC is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.